What is Foreign Exchange Risk?

If you’re planning to travel overseas anytime soon, one of the things you need to start keeping an eye on is foreign exchange rates. In the current geopolitical climate it’s almost impossible to predict whether your home currency will appreciate or depreciate in relation to the currency of a country you’re about to visit.

Travel expenses including accommodation and food are all impacted by currency fluctuations. Sudden movements in currency prices at the wrong time could make your trip abroad more expensive than you had planned, so here are three ways to offset currency risk when travelling abroad:

Invest in a Travel Card

Withdrawing funds in a local currency from an ATM overseas is ridiculously expensive. Not only is your bank’s exchange rate awful, often you’ll also be charged a flat fee of $5-$10 just for accessing your own funds! Fortunately, there are ways to access your money more affordably when overseas. Travel cards such as the Citibank Plus don’t incur exchange or transaction fees. Some cards can also provide you with more competitive foreign exchange rates, so your Australian dollars go further overseas.

Plan Ahead when Exchange Rates are Favourable

If you’re like most people and plan your overseas holidays well in advance, keep an eye on currency rates in advance, too. If currency markets are generally quite volatile and things move in your favour all of a sudden, don’t pass up the opportunity to buy foreign currency and pay for big ticket items such as your accommodation, especially if you are paying for it in the destination currency. Booking engines like Booking.com and Trivago allow you the opportunity to reserve accommodation and they also let you pay ahead when booking your stay. This could save you hundreds of dollars if paid for at the right time.

Keep a Close Eye on the Financial Markets

According to FX experts Compare Forex Brokers, currency prices very rarely fluctuate dramatically without plenty of forewarning. Unforeseen events like the Swiss Franc crisis (when Switzerland unpegged their Franc to the Euro) don’t occur frequently. In most situations, currencies don’t change in price by more than a few basis points each day. This means that if overseas travellers keep a close eye on the markets they’ll get plenty of warning about when to convert their local dollars into foreign money. Unexpected events do happen from time to time but generally travellers can get a pretty good gauge on which way currency prices will move if they’re in tune with the financial world.

The last thing you want to be doing when overseas is worrying about how currency prices are going to impact the cost of your trip. Plan ahead, invest in a cost-effective travel card and pay for your big travel expenses when currency prices are favourable. Finally, to avoid being charged unwanted transaction and withdrawal fees, make sure you pay for smaller expenses such as coffee, food, public transport and so on with local cash rather than on a credit or travel card.